The current fee-for-service healthcare model should be replaced with bundled payment systems that encourage more coordinated care, the National Commission on Physician Payment Reform said in a report released Monday.

A year ago, the 14-person committee was tasked with examining the current system of physician payments and suggesting reforms, with a specific focus on Medicare.

The committee issued 12 recommendations for payment reform in its report. Phasing out fee-for-service was the No. 1 proposal. The commissioners said FFS “contains incentives for increasing the volume and cost of services, whether appropriate or not; encourages duplication; discourages care coordination, and promotes inefficiency in the delivery of medical services.”

Bundled payment systems that reward quality of care, such as accountable care organizations, should therefore replace FFS, they said.

Acknowledging that the move to bundled payments will have to be gradual, the commission suggested starting with payouts related to people with multiple chronic conditions. The commission also said reform could start by bundling payments for conditions that involve in-hospital and post-acute care, such as heart attacks and joint replacements.

The commission's recommendations are in line with government reimbursement goals. More than 165 nursing home operators are participating in the latest bundled payment initiative of the Centers for Medicare & Medicaid Services.

Drug substitutions saved the government $13 million last year, but more drug substitutions under Medicare Part B would have saved an additional $6 million, the Office of Inspector General for Health and Human Services concluded in a recent report to Congress.